# Dividend Valuation Model Overview

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## 12 Questions

### What happens to the stock value if the cash flow (D or g) increases?

The stock value increases

### What does the term $D_1/V$ represent in the equation $r = D_1/V + g$?

The expected dividend yield of the stock

### What type of companies is the constant-growth model best suited for?

Mature, dividend-paying companies with steady growth

### What happens to the stock price if the required rate of return (r) decreases?

The stock price increases

### What does the constant-growth model capture regarding the components of a stockholder's total return?

Both the dividend and capital gain components

### What type of companies are likely to have fairly predictable growth rates in earnings and dividends?

Large-cap and mature mid-cap companies

### Which model assumes that dividends will not grow over time?

The zero-growth model

### What is the formula used to calculate the value of a share of stock in the constant-growth dividend valuation model?

Value of a share of stock = Next year's dividends / (Required rate of return - Dividend growth rate)

### What is the condition for the dividend growth rate (g) in the constant-growth dividend valuation model?

g must be less than the required rate of return (r)

### Does the constant-growth dividend valuation model assume that the investor will hold the stock forever?

No, the model does not make any assumptions about how long the investor will hold the stock

### What does the constant-growth dividend valuation model assume about the growth rate of dividends?

The dividends will grow at a constant rate forever

### If the investment horizon has no bearing on the computed value of a stock, what does this imply about the value calculated using the constant-growth dividend valuation model?

The calculated value will be the same regardless of the investment horizon

Learn about the Dividend Valuation Model, which considers a growing stream of dividends. This model assumes that dividends grow over time at a specified rate, providing a new perspective on stock valuation.

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